The start of the financial year is the perfect time to take stock of your finances, learn from past mistakes and recalibrate your goals — because your goals should dictate your money moves, not the tax-filing deadline! I have a few pointers to guide you so that you're in a better position to make important and informed financial decisions.
Set or review financial goals
A financial decision without a clear goal is like a rudderless ship. As such, it's critical that you have in place precise, and realistic, short-term and long-term goals which should build the foundation of your financial strategies. So set them, if you haven't done so yet. If you have some goals in place, review how much progress you made last year in achieving those. If need be, fine-tune your strategy to ensure you not just meet your target this year but also make up for last year's gap.
Chalk out your tax-saving plan for the entire year
Did you buy an insurance plan days before the March 31 deadline just to reduce your tax burden? Avoid such last-minute decisions and chalk out your tax-saving plan for the entire year. Get complete clarity on your tax liability in the new financial year and start exploring investment or insurance options to bring it down. Top tax-saving plans include ELSS, PPF, life insurance policies, medical plans, NPS, 5-year FDs, Sukanya Samriddhi Yojana among others. Choose the ones whose returns are in line with your goals and risk profile.
Take steps to safeguard your savings
Consolidating your financial base is vital to keep you on track to meet your goals. So safeguard your savings to ensure they're not drained to tackle an unexpected event like a sudden job loss or health issue. So, building an emergency fund (consisting of at least 6 months of your average monthly expenses) and signing up for a health insurance plan (with adequate coverage and important add-ons like accidental coverage) should be a high priority.
Start acting on your counter-debt strategies
If you're under considerable debt, especially high-interest incurring ones like credit card dues, make it a point to start working towards getting rid of those from the very beginning of the financial year. Spiralling debt can easily throw your financial goals out of gear, apart from causing immense psychological stress. So, take stock of your entire debt situation, focus on the ones that carry either the highest interest rate or the lowest repayments, and implement strategies to clear them off.
Going on a financial diet, expanding your income pool and taking help of counter-debt tools like a debt consolidation plan, or a credit card balance transfer (after through comparison and due diligence), are some of the common strategies. Your debt situation may appear insurmountable now, but unless you roll your sleeves and get your hands dirty, you will not make any headway. Even small steps like starting a side gig or selling an unwanted item will go a long way in boosting your confidence as you tackle your debt.
Review your investments
It's also the right time to evaluate how your investments performed last year and take the necessary steps to ensure they're aligned with your financial goals. You may want to top-up certain profitable investments or reinvest your returns to accelerate on the road to meet your targets. You may also want to rebalance your entire investment portfolio to boost your inflation-and-tax-adjusted-returns or weave a stronger safety net depending on your risk profile, financial goals and tax-saving plan.
Identify areas to cut wasteful spends
If you take a long, hard look at your monthly expenses, you're likely to come across a number of areas where you can cut corners to meet your targets, like building a home down payment fund, getting rid of debt or raising investment capital. Carpooling to work, giving up smoking, cooking instead of eating out and shopping less frequently-the possibilities are endless.
Look for ways to increase your income
Work harder and smarter to land a promotion, explore side gigs on weekends, launch an online channel to showcase your expertise, refine your job search if you feel you've hit the wall in your current job-do whatever it takes to increase your income to complement your cost-cutting measures. Simply put, more money can mean bigger savings, greater investment capital, or quicker debt reduction.
Finally, create a financial plan even for your favourite lifestyle spends
Yes, being financially prudent doesn't mean you don't have a life at all! But then, you must spend on your favourite things, be it on travel, gadgets or shopping, but according to a plan and your budget. As such, figure out your lifestyle goals for the year and start allocating money from the beginning of the year for those big-ticket expenses so that you avoid impulsive or careless overspending.
So, go ahead, make 2019-20 a turnaround year in your journey to attain financial freedom with these smart and prudent strategies.
The writer is CEO, BankBazaar. The article has been published in collaboration with BankBazaar. Opinions expressed are those of the author.